January 23, 2013

California Court of Appeal Supports Employer’s Use of Arbitration and Waiver of Class Actions

In an employer-friendly decision, a California Court of Appeal affirmed the dismissal of a class action and ordered arbitration of the individual employee’s claim in Outland, et al. v. Macy’s (January 17, 2013).  This is the second California appellate decision following the U.S. Supreme Court’s holding in AT&T v. Concepcion, 131 S.Ct. 443 (2007) and applying the principle that a waiver of class actions can be enforceable in an arbitration agreement.

Plaintiff Jennifer Outland sued her employer and claimed that she usually worked more than 50 hours per week without being properly compensated for the overtime and for missed meal and rest breaks.  She claimed that she was misclassified as an exempt employee.  She filed the lawsuit as a class action.

The employer responded with a motion to compel arbitration of her individual claims.  Macy’s also moved to dismiss her class action claims because the arbitration agreement barred any class actions.

Outland argued that a recent decision of the National Labor Relations Board, D.R. Horton, supported her ability to bring a class claim.  D.R. Horton held that a class action waiver in an arbitration agreement was unenforceable because it violated employees’ rights to engage in concerted, protected activity under the National Labor Relations Act.

The Court of Appeal in the Macy’s case disagreed about the persuasiveness of the NLRB decision.  Instead, the Macy’s court relied on the U.S. Supreme Court’s decision in Concepcion that allowed for a waiver of a class action in a consumer arbitration agreement.  They found that the Concepcion decision allows them to validate the employment arbitration agreement and hold differently than a 2007 California Supreme Court decision (Gentry v. Superior Court, 42 Cal.4th 443 (2007)) and the recent NLRB decision.

This Macy’s decision is consistent with a prior California appellate decision in Iskanian v. CLS Transportation Los Angeles LLC (June 4, 2012).  In that case, the appellate court upheld an arbitration agreement that included a class action waiver.  This creates a split in the California appellate courts on this very contentious issue.  In 2011, a California Court of Appeal in Brown v. Ralph’s Grocery Co., 197 Cal.App.4th 489 (2011), held that Concepcion did not apply to representative actions under the California Private Attorney General Act (PAGA).  The Brown court held that a waiver of such representative actions is unenforceable.

The California Supreme Court has agreed to decide the issue of whether a waiver of class actions in an arbitration agreement is enforceable by accepting review of the Iskanian case.  Currently, there are two appellate decisions that support the enforceability of the class action waivers and it would be prudent for employers to have their arbitration agreements reviewed and revised in keeping with the two favorable appellate decisions.